Is It Frugality Or Is It Saving?

This post is longer than my usual renderings but worth the read.

We often consider frugality and saving synonymous. As a Frugalista, I’m all for hacks that promote less spending. However, I wish to suggest that these terms are not the same. Frugality is simply one step in the saving process. 

Frugal people:

🚗 Buy high-quality used cars and keep up the maintenance

🛍️ Purchase with intention and use forever

📝 Shop with a list and buy generic whenever possible

🎟️ Take advantage of loyalty programs, coupons, and cash-back opportunities

☕ Make coffee at home

📚 Borrow from the library rather than buy

📱 Cancel unused subscriptions

🔧 Fix instead of replacing

Practicing these habits mostly keeps funds in your pocket, which ultimately allows you to have more money to spend. 

But think about it. How often does this behavior translate to saving for a specific goal? 

I’m talking about placing money into a concrete savings instrument. This tool does not have to be sophisticated. It can be as simple as dropping your coins into a piggy bank. 

Yes, at my age, I still have one. I’m happy to share the reason if you’re interested. 

While a piggy bank is a good place to start, saving vehicles should progress to more advanced options.

DISCLAIMER: I am not an accountant or a financial advisor. What I’m about to share follows the progression of my personal saving process. Your path could differ from mine. For example, I don’t recall setting dollar amounts to each goal. You may decide to do so.

My parents were savers and encouraged me to start this practice when I was a child. So, once I filled my piggy bank, they helped me open a savings account. Many of these initial accounts offer a small amount of interest. 

I continued to feed my piggy bank, and when full, deposited its contents into my savings account. I also added a portion of the money I received on my birthday and other special occasions.

GOAL: Accumulate enough funds to upgrade to an account that offers a higher interest rate.

When I reached the minimum required deposit amount, I transferred my funds into a high-yield savings account, which earned more interest than a regular account and reinforced the value of compound interest. More on this benefit later. 📌

GOAL: Accumulate a source of liquid funds for needs and wants.

My father passed the entrepreneurship gene on to me, which spawned early attempts to earn money (creating and selling toothpick and popsicle stick structures, babysitting, etc.). I continued to save throughout this period, and by the time I held my first part-time job, I was on my way to seriously saving. 

GOAL: Segregate savings into separate accounts to meet needs, wants and emergencies.

During my early adulthood years, I broadened my horizons and purchased CDs (Certificates of Deposit). CDs allowed me to set funds aside in separate accounts with varying interest rates and maturity dates. This is known as “laddering” your savings.

GOAL: Continue to grow my savings to cover all bases.

I started saving for retirement much later than I should have, which was not a wise course of action. As a result, I had to make up for lost time. Another point for later discussion. 📌#2

During this period, a friend who was a financial advisor suggested I invest in annuities. He turned me on to options with low fees that offered guaranteed lifetime payments. I also opened a Roth IRA, which allowed me to avoid paying taxes when I withdrew funds.

GOAL: Invest a minimum of $1,000 every month for retirement. 

This article gives more details about the saving for retirement part of my story. 

Bottom line: Saving and setting goals is a way of life for me. My frugal side allows me to spread around the money I’ve set aside to spend. But frugality is simply one form of saving. The other side of the coin requires an actual investment of funds into savings vehicles.

Back to the 📌s – Time and compound interest (interest accrued on both the principal and previously accumulated interest) are your best saving partners. You will more likely live a wealthy life the sooner you practice frugality and invest funds into savings instruments that offer compound interest.